Please note that terminology, laws and regulations often vary based on several factors, including industry, location, and more. It’s important you check your local guidelines before taking action. If you have questions, please contact us.
Having the appropriate insurance policies can make or break a business. According to a study conducted by Marshall and Swift/Boeckh, 75% of US businesses are underinsured, which leaves them financially vulnerable to natural disasters, lawsuits, and more.
Because insurance can be such a complicated field every business owner should take time to truly understand what risks their businesses are vulnerable to and what policies they should purchase as a result. To do this, you will need to conduct a risk assessment, research types of policies, and meet with an insurance professional to discuss the specific needs of your operation.
Assess Your Business Threats
There are many types of risks your business could fall victim to. Some of the more common include*:
Physical risks include things like building damage, fires, falling equipment, injuries, and carbon monoxide poisoning. These can’t be completely avoided but you can minimize the risk by creating accessible emergency plans, educating employees, and conducting regular inspections.
You will have less control over location risks, but as with physical risks, you can prepare with emergency protocols and employee education. Location risks include area-specific events and natural disasters, like tornados and storm damage.
In a perfect world we’d be able to trust all employees and coworkers to do the right thing. Unfortunately, we need to be prepared for things like fraud, embezzlement, addiction and more. Conducting background checks and getting to know your employees are two ways you can help manage this risk.
Once you’ve identified your threats you should evaluate them based on how likely they are, and the impact they would have if they were to happen. For example, a 100-year flood doesn’t happen frequently, but if it did, and your location flooded, what would the cost to get back into business be? From here, you can start to look into different types of policies to get a better understanding of which ones are most important for your business.
Types of Insurance Policies for Small Businesses
Property insurance traditionally covers your building and the contents inside (furniture, inventory, documents) from most physical risks like fire, storms, and theft. If you’re business is base out of your home, property insurance may not be applicable, and you should investigate home-based business insurance
Business Interruption/Business Income Insurance
Business Interruption Insurance will protect you if your business is forced to stop operating for a period of time. This coverage will help cover lost income if a qualifying event occurs. Events could include something like a natural disaster or a mandated shutdown.
General Liability Insurance
Almost all businesses have General Liability Insurance and it’s necessary. According to The Hartford, nearly half of small businesses will need to file a general claim within the next decade. This type of policy covers things like negligence, property damage, copyright infringement, and general lawsuits.
Workers Compensation protects both the employee and the employer in the case that an employee is injured, killed, or becomes ill while on the job. This type of coverage is required by most states and is paid for by the employer. If an employee becomes incapacitated “in the course and scope” of their duties, Workers Comp can cover costs like medical expenses, lost wages and more.
The above list does not include all types of business insurance, just those most common. If you work in a niche area there may be policies that are required and not listed here. To make sure you’re fully covered, we recommend reaching out to an insurance professional to discuss your specific needs.
What to do Before Meeting with an Insurance Professional
Once you’ve evaluated your risk, and investigated different types of policies, you should have enough foundational knowledge to meet with a professional who can help you determine which policies you’ll need, and how large they should be. During this meeting, you should also be prepared to provide specific information about your business, like:
Basic Business Information
Number of employees
General Scope of Work
* Depending on what type of business you operate, you may have to take other risks, like exposure to hazardous materials, data breaches, and technology failures, into consideration.